Break-even investment amount for every tax-slab This is higher than the tax liability of ₹1,95,000 lakh under the new regime, so it will be worthwhile to shift to the new regime. On the other hand, if the person’s tax breaks are only ₹2,00,000, thier taxable income under the old regime will be ₹13,00,000 and the tax liability will be ₹2,10,600. So, it will be better to continue with the old regime. Now, if the person’s tax breaks increase to ₹3,00,000 then his taxable income under the old regime will come down to ₹12,00,000 and the tax liability will be ₹1,79,400, while under the new regime, the tax liability will be ₹1,95,000. Thus, at this break-even level of tax benefits, it makes no difference whether the person stays in the old regime or shifts to the new one. But thanks to lower tax rates, the tax liability will be the same - ₹1,95,000. Under the new regime, without the benefit of these deductions and exemptions, the person’s taxable income will be ₹15,00,000. If the deductions and exemptions claimed by this person amount to a total of ₹2,50,000 a year, the taxable income under the old regime becomes ₹12,50,000 and the tax liability for ₹12,50,000 will be ₹1,95,000. Let’s learn with an exampleĬonsider an individual, less than 60 years old, with a gross annual income of ₹15,00,000. If you invest less than the break-even point, your tax liability will be more with the current tax system, so you are better off switching to the new tax system. If you invest more than the break-even point, your tax liability will be less with the current tax system. Once you identify that break-even amount, it’s a matter of knowing if you can make investments to match up to that break-even amount or not. So here’s how you can compare and calculate your tax liabilities to make the right decision.įor every gross income drawn by an employee, there is a break-even investment amount at which the tax liability will be the same under the old tax regime and the new tax regime. You have to take into account the impact of these tax breaks on your final tax liability before deciding to switch or stay. You would also have to forego the benefits of most exemptions under Section 10, such as HRA and LTA. These include key deductions that come under Section 80C, 80D, Section 24, Section 80CCD, and Section 80E. However, that might not be the case because, under the new tax regime, you would have to forego numerous known deductions and exemptions. So as employees, which one should you choose to ensure that you save the most amount of tax? Just by taking a look at the tax slabs, you might come under the impression that the new tax rates will be beneficial because of the lower tax slabs. We know that there are two different tax regimes in place now. Here’s a detailed tax liability matrix for various tax slabs according to the latest tax regime. * Employees earning 5L per annum are exempt from taxes by rebate. Example: for employees earning between ₹5,00,000 – ₹7,50,000, the tax percentage has been reduced from 20% to 10% With the newly proposed tax system, the Government of India has brought in reduced tax rates for various income tax slabs. In this article, we will take a look at the existing tax system and the newly proposed tax system, decode which tax regime is better for which salary range, and provide a comparative study so that employees can make informed decisions.Įmployees’ tax slab and tax percentage are classified by factors including the income earned and the individual’s age. The lower the income, the lower the tax liability. Employees earning less than 5 lakh per annum are fully exempt from taxes by rebate. Throughout this article, we will look at the calculations for salaried employees whose age is less than 60. Since employees now have a choice, it is important for them to know the difference between the two tax systems. For the upcoming fiscal year, employees can choose to stick with the existing tax regime or opt for the newly proposed tax regime. This newly proposed tax regime will be applicable starting from the fiscal year 2020-2021. The Finance Ministry of India recently announced a new tax regime for the employees under the Union Budget 2020.
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